PMI-RMP Principles and Concepts Tutorial

3.1 Principles and Concepts

Hello and welcome to the Project Management Institute’s Risk Management Professional Certification Preparatory Course offered by Simplilearn. In this lesson, we are going to discuss the principles and concepts of Project Risk Management.
Let us look into the objectives of this lesson in the next screen.

3.2 Objectives

After completing this lesson, you will be able to:
? Explain Individual and Overall Project Risk
? Identify Stakeholder Risk Attitudes
? Explain Iterative Process
? Define Communication
? Describe Responsibility for Project Risk Management
? Recognize the Role of Project Manager
Let us begin with the first concept, individual and overall project risk, in the next screen.

3.3 Individual and Overall Project Risks

The project risk is an uncertain event or a condition that has a positive or a negative effect on the project objectives. Project risk is classified into two levels, they are Individual risk and Overall project risk. Understanding individual risk helps in overcoming the project-related risks and increases the probability of project success. Individual risks are specific events or conditions that might affect the project objectives. For example, the delay in arrival of equipment affects an individual activity and may delay the overall project schedule. Day-to-day project risk management focuses on these individual risks to enhance the prospects of a successful project outcome.
Overall project risk is more than the sum of individual risks. The overall project risk represents the effect of uncertainty on the project as a whole. The assessment of project risk helps in decision-making at strategic level and in turn at program, portfolio, and project governance levels to decide priorities.
By looking into the overall project risk, one can determine the contingency reserve required to manage the budget and the time line of the project.
Each stakeholder in the project will have different risk-taking attitudes. In the next screen, we will look into the stakeholder risk attitude.

3.4 Stakeholder Risk Attitudes

It is important for a project or a risk manager to understand stakeholders’ risk attitudes. The risk attitudes of the project stakeholders determine the extent to which an individual risk or overall project risk matters. Some of the factors that influence risk attitude are stakeholder’s sensitivity to issues such as environmental impacts, industrial relations, and strength of public commitments made about the project performance. Risk attitudes usually result in a desire for increased certainty in project outcomes and it may express a preference for one project objective over the other. Understanding stakeholders’ attitudes towards risk is an important component of risk management planning. A stakeholder’s risk attitude can be classified into three major categories, risk seeker, risk neutral, and risk averse. Click each tab on the screen to learn more.
Slide 4A:
Stakeholders who are risk seeking in nature, are called Risk seeker.
Slide 4B:
Risk neutral attitude is neither risk averse nor risk seeking, Stakeholders are risk neutral here.
Slide 4C:
Stakeholders who does not take risks at all, are risk averse in nature.
The priority of the risk depends upon the risk attitudes and tolerance levels of the stakeholders. For example, if tolerance towards timelines is low, all the risks that impact project timelines will be high priority risks. A single stakeholder may adopt different risk attitudes at various stages in the same project.
This attitude may change over a period during the project life cycle. Risk management is iterative in nature. We will discuss the iterative process of risk management in the next screen.

3.5 Iterative Process

Risk Management is not a one-time activity. The identification and the overall risk management plan changes based on the dynamism. Usually, the amount of information available about risks will increase throughout the project lifecycle. Some risks may occur while the others may not. New risks arise and the characteristic of existing ones may change. Therefore, the project risk management process should be repeated and the plans must be progressively elaborated throughout the lifetime of the project.
Now, let’s discuss some important pointers, which must be kept in mind when discussing the iterative processes of risk management. Firstly, risk identification is repeated throughout the project life cycle.
Secondly, periodicity should be determined.
Lastly, risk identification can be repeated at a key milestone or when there is a change in the project or its operating environment.
During this iterative process, the stakeholder engagement and communication is very important. In the next screen, we will discuss the importance of communication in risk management.

3.6 Communication

Communication is essential while conducting project risk management. Important points to be kept in mind to make the risk management informative or to create awareness are as follows: Project risk management cannot take place in isolation. The stakeholders should be kept informed about the progress of the project, which in turn helps them to identify and analyze the risks as well. Conveying the right information at the right time to the right person or stakeholder is called effective and honest communication. The result of the communication should meet the need of each stakeholder as well as the overall project objectives.
Let us now look into the responsibility to be carried out during project risk management in the next screen.

3.7 Responsibility for Project Risk Management

Management of project risk is not limited to few risk specialists. Since project risks can affect project objectives, anyone with an interest in achieving those objectives should play a role in project risk management. Let us now discuss some of the responsibilities for project risk management.
Risk Management is everyone’s responsibility. Project risk management should be an integral part of all the other project knowledge areas like time, cost, quality, scope, etc. Roles and responsibilities like owner, should be clearly identified and communicated.
Finally, one can use the RACI (Read as: R-A-C-I) model to define the roles and responsibility.
Let’s look into RACI model in detail now. As seen in the sample table on the screen, ‘R’ stands for responsibility, it refers to the person who implements the defined activities and takes action to implement the risk responses. ‘A’ stands for accountability of the person who takes the ownership about risk implementation and managing. ‘C’ stands for consult or a person who acts as the expert and provides the guidance regarding the risk management success. And ‘I’ stands for inform, that is, the person who will be informed about the status of risk management progress.
It is important to understand the role of project manager from the project risk management point of view. In the next screen, we will understand the role of project manager.

3.8 Role of Project Manager

Project manager plays an important role in carrying out the overall project risk management during the project. The project manager is responsible for delivering a successful project which fully meets the defined objectives. Further, a project manager is accountable for the day-to-day management of the project including effective risk management. The role of a project manager can be explained as follows:
Encouraging the senior management support for project risk management activities.
Determining the acceptable levels of risk for the project in consultation with stakeholders.
Developing and approving the risk management plan.
Promoting project risk management processes.
Facilitating open and honest communication about risk with the stakeholders.
Participating in all the project risk management processes and its improvements.
Auditing risk responses for effectiveness and documenting the lessons learned.
Monitoring the efficiency and effectiveness of the project risk management process.
Escalating the risks that go beyond tolerances. In other words, escalating the risks that are outside the authority or control of project manager to the senior management, as and when required.
Regular reporting of risk statuses to the stakeholders with recommendations.
Overseeing risk management activities by team members.
Applying reserves like contingency funds to deal with identified risks.
And finally, approving the risk responses and actions for implementation
Depending on the size of the project and nature of risks, a project manager can take support of risk managers to manage risks.
Let us move on to the quiz questions to check your understanding of the concepts covered in this lesson.

3.10 Summary

Here is a quick recap of what was covered in this lesson:
? Individual Risk and Overall Project Risk are the two levels of Project Risk.
? Stakeholder’s Risk Attitudes may be risk seeker, risk neutral, and risk averse.
? Risk identification is an Iterative Process.
? Communication should be effective and honest to meet the needs of stakeholders and project objectives.
? RACI model can be used to define the roles and responsibility in Project Risk Management.
? Project Risk Management should be an integral part of all the other project knowledge areas.

3.11 Conclusion

This concludes the Principles and Concepts of Project Risk Management.
The next lesson covers an Introduction to Project Risk Management Processes.

3.1 Principles and Concepts

Hello and welcome to the Project Management Institute’s Risk Management Professional Certification Preparatory Course offered by Simplilearn. In this lesson, we are going to discuss the principles and concepts of Project Risk Management.
Let us look into the objectives of this lesson in the next screen.

3.2 Objectives

After completing this lesson, you will be able to:
? Explain Individual and Overall Project Risk
? Identify Stakeholder Risk Attitudes
? Explain Iterative Process
? Define Communication
? Describe Responsibility for Project Risk Management
? Recognize the Role of Project Manager
Let us begin with the first concept, individual and overall project risk, in the next screen.

3.3 Individual and Overall Project Risks

The project risk is an uncertain event or a condition that has a positive or a negative effect on the project objectives. Project risk is classified into two levels, they are Individual risk and Overall project risk. Understanding individual risk helps in overcoming the project-related risks and increases the probability of project success. Individual risks are specific events or conditions that might affect the project objectives. For example, the delay in arrival of equipment affects an individual activity and may delay the overall project schedule. Day-to-day project risk management focuses on these individual risks to enhance the prospects of a successful project outcome.
Overall project risk is more than the sum of individual risks. The overall project risk represents the effect of uncertainty on the project as a whole. The assessment of project risk helps in decision-making at strategic level and in turn at program, portfolio, and project governance levels to decide priorities.
By looking into the overall project risk, one can determine the contingency reserve required to manage the budget and the time line of the project.
Each stakeholder in the project will have different risk-taking attitudes. In the next screen, we will look into the stakeholder risk attitude.

3.4 Stakeholder Risk Attitudes

It is important for a project or a risk manager to understand stakeholders’ risk attitudes. The risk attitudes of the project stakeholders determine the extent to which an individual risk or overall project risk matters. Some of the factors that influence risk attitude are stakeholder’s sensitivity to issues such as environmental impacts, industrial relations, and strength of public commitments made about the project performance. Risk attitudes usually result in a desire for increased certainty in project outcomes and it may express a preference for one project objective over the other. Understanding stakeholders’ attitudes towards risk is an important component of risk management planning. A stakeholder’s risk attitude can be classified into three major categories, risk seeker, risk neutral, and risk averse. Click each tab on the screen to learn more.
Slide 4A:
Stakeholders who are risk seeking in nature, are called Risk seeker.
Slide 4B:
Risk neutral attitude is neither risk averse nor risk seeking, Stakeholders are risk neutral here.
Slide 4C:
Stakeholders who does not take risks at all, are risk averse in nature.
The priority of the risk depends upon the risk attitudes and tolerance levels of the stakeholders. For example, if tolerance towards timelines is low, all the risks that impact project timelines will be high priority risks. A single stakeholder may adopt different risk attitudes at various stages in the same project.
This attitude may change over a period during the project life cycle. Risk management is iterative in nature. We will discuss the iterative process of risk management in the next screen.

3.5 Iterative Process

Risk Management is not a one-time activity. The identification and the overall risk management plan changes based on the dynamism. Usually, the amount of information available about risks will increase throughout the project lifecycle. Some risks may occur while the others may not. New risks arise and the characteristic of existing ones may change. Therefore, the project risk management process should be repeated and the plans must be progressively elaborated throughout the lifetime of the project.
Now, let’s discuss some important pointers, which must be kept in mind when discussing the iterative processes of risk management. Firstly, risk identification is repeated throughout the project life cycle.
Secondly, periodicity should be determined.
Lastly, risk identification can be repeated at a key milestone or when there is a change in the project or its operating environment.
During this iterative process, the stakeholder engagement and communication is very important. In the next screen, we will discuss the importance of communication in risk management.

3.6 Communication

Communication is essential while conducting project risk management. Important points to be kept in mind to make the risk management informative or to create awareness are as follows: Project risk management cannot take place in isolation. The stakeholders should be kept informed about the progress of the project, which in turn helps them to identify and analyze the risks as well. Conveying the right information at the right time to the right person or stakeholder is called effective and honest communication. The result of the communication should meet the need of each stakeholder as well as the overall project objectives.
Let us now look into the responsibility to be carried out during project risk management in the next screen.

3.7 Responsibility for Project Risk Management

Management of project risk is not limited to few risk specialists. Since project risks can affect project objectives, anyone with an interest in achieving those objectives should play a role in project risk management. Let us now discuss some of the responsibilities for project risk management.
Risk Management is everyone’s responsibility. Project risk management should be an integral part of all the other project knowledge areas like time, cost, quality, scope, etc. Roles and responsibilities like owner, should be clearly identified and communicated.
Finally, one can use the RACI (Read as: R-A-C-I) model to define the roles and responsibility.
Let’s look into RACI model in detail now. As seen in the sample table on the screen, ‘R’ stands for responsibility, it refers to the person who implements the defined activities and takes action to implement the risk responses. ‘A’ stands for accountability of the person who takes the ownership about risk implementation and managing. ‘C’ stands for consult or a person who acts as the expert and provides the guidance regarding the risk management success. And ‘I’ stands for inform, that is, the person who will be informed about the status of risk management progress.
It is important to understand the role of project manager from the project risk management point of view. In the next screen, we will understand the role of project manager.

3.8 Role of Project Manager

Project manager plays an important role in carrying out the overall project risk management during the project. The project manager is responsible for delivering a successful project which fully meets the defined objectives. Further, a project manager is accountable for the day-to-day management of the project including effective risk management. The role of a project manager can be explained as follows:
Encouraging the senior management support for project risk management activities.
Determining the acceptable levels of risk for the project in consultation with stakeholders.
Developing and approving the risk management plan.
Promoting project risk management processes.
Facilitating open and honest communication about risk with the stakeholders.
Participating in all the project risk management processes and its improvements.
Auditing risk responses for effectiveness and documenting the lessons learned.
Monitoring the efficiency and effectiveness of the project risk management process.
Escalating the risks that go beyond tolerances. In other words, escalating the risks that are outside the authority or control of project manager to the senior management, as and when required.
Regular reporting of risk statuses to the stakeholders with recommendations.
Overseeing risk management activities by team members.
Applying reserves like contingency funds to deal with identified risks.
And finally, approving the risk responses and actions for implementation
Depending on the size of the project and nature of risks, a project manager can take support of risk managers to manage risks.
Let us move on to the quiz questions to check your understanding of the concepts covered in this lesson.

3.10 Summary

Here is a quick recap of what was covered in this lesson:
? Individual Risk and Overall Project Risk are the two levels of Project Risk.
? Stakeholder’s Risk Attitudes may be risk seeker, risk neutral, and risk averse.
? Risk identification is an Iterative Process.
? Communication should be effective and honest to meet the needs of stakeholders and project objectives.
? RACI model can be used to define the roles and responsibility in Project Risk Management.
? Project Risk Management should be an integral part of all the other project knowledge areas.

3.11 Conclusion

This concludes the Principles and Concepts of Project Risk Management.
The next lesson covers an Introduction to Project Risk Management Processes.